Letter to the House and Senate on the Tax Cut Deal
December 14, 2010
The National Education Association, representing 3.2 million educators across the nation, would like to express our views on the reported tax cut deal currently under consideration:
- We are deeply disappointed that the package includes financially irresponsible provisions – including the extension of tax cuts for the very wealthy and a very troubling deal on the estate tax – that will have grave consequences for our economy, place even greater burdens on struggling state budgets, and cause additional deep cuts in core services for our most vulnerable populations.
- We are also very concerned that the proposed payroll tax cut holiday would provide no benefits to six million public employees, including many educators, who do not participate in Social Security. Denying these tax benefits to these dedicated public servants is inequitable and unfair.
- Despite these very troubling provisions, we are pleased that the deal provides much needed relief to families on the brink of survival. Provisions such as the extension of unemployment benefits are lifelines for many NEA members and the students they serve. Without such help, many would find themselves unable to feed their children or keep their homes. Given the great need of so many in our nation we will not oppose passage of the deal.
The following provides additional details on NEA’s positions on selected provisions in the tax cut deal.
- Extension of the Educator Tax Deduction: The educator tax deduction recognizes the financial sacrifices made by teachers and paraprofessionals, who often reach into their own pockets to purchase classroom supplies. Studies show that teachers are spending more of their own funds each year to supply their classrooms and purchase essential items such as pencils, glue, scissors, and facial tissues. For example, during the 2005-2006 school year, educators’ out-of-pocket expenses totaled nearly $2,000 – $826 for classroom supplies and $926 for instructional materials on average.
- Extension of Unemployment benefits: In December alone, two million workers who would have lost benefits will continue to receive them because of this potential deal. Over the next year, seven million workers will no longer need to worry that their unemployment benefits could be eliminated as they search for jobs. According to the Council of Economic Advisers, passing this provision will create 600,000 jobs in 2011 alone.
- Child Tax Credit: This extension will ensure an ongoing tax cut to 6.5 million lower income families with 18 million children.
- Earned Income Tax Credit: Continuing this tax cut will benefit 10.5 million working parents with 15 million children.
- American Opportunity Tax Credit: The Recovery Act included a new, partially refundable tax credit of up to $2,500 to help students and their families cover the cost of college tuition. The proposed extension will allow more than eight million students to continue to receive this tax benefit to help them afford college.
NEA STRONGLY OPPOSES:
- Increasing the Exemption Level and Lowering the Top Rate for the Estate Tax: Under the proposal, the estate tax exemption level would be raised to $5 million and the top rate lowered to 35%. The impact on state budgets – and on provision of critical public services like education, health care, and public safety – will be devastating.
Many states peg parts of their tax codes to the federal code and a loss of tax revenue at the federal level translates into a loss at the state level as well. State budget problems are far from over; deficits are projected to climb to $134 billion, in fiscal year 2012. The 2012 deficits are expected to be larger than those in 2010 and 2011 because federal fiscal relief will have run out, while the economy — and state revenue collections — remain very weak. (Center on Budget and Policy Priorities).
The lost revenue for states as a result of the proposed estate tax changes will make it even more difficult to dig out from these huge deficits – despite the fact that many federal policymakers said repeatedly that states should be fully responsible for addressing their own fiscal problems. Doing so will be impossible if the federal government continues to enact policies that reduce state revenues even further. For example, California Governor-Elect Brown has warned that the state's $25.4 billion deficit might grow to $28.1 billion because of the proposed reductions in estate tax revenue.
The real losers, however, will be the working families, children, elderly, disabled, and other vulnerable populations who will continue to see reductions in the core services they depend on. According to the Center on Budget and Policy Priorities, at least 46 states plus the District of Columbia have reduced programs and services since 2008, with 31 states cutting health programs, 29 states cutting services to the elderly and disabled, 33 states cutting K-12 education, and 43 states cutting higher education. Deeper cuts are sure to follow as a result of these estate tax changes.
- Denial of the Payroll Tax Holiday Benefits to Millions of Public Employees: The proposed Social Security payroll tax cut holiday would reduce the employee share of the Social Security payroll tax from 6.2% to 4.2% for the first $106,800 in wages. However, more than six million public employees will not be eligible for these benefits. Excluding these employees will take cash from their pockets. For example, public employees earning $30,000 would lose $600; those earning $50,000 would lose $1,000; and employees earning $80,000 would lose $1,600.
There are simple solutions to fixing this inequity and precedent for doing so. Relief for seniors not eligible for Social Security was provided in the American Recovery and Reinvestment Act of 2009, which included a $250 refundable tax credit for public service retirees not eligible for the Act’s $250 payment to Social Security recipients.
- Extension of Tax Cuts for the Wealthiest Individuals: Extension of these tax cuts is a highly inefficient way to stimulate the economy now, and will pose serious long-term fiscal risks. According to the Tax Policy Center, the tax cuts average over $100,000 a year for people whose incomes exceed $1 million a year. And, according to the Center on Budget and Policy Priorities, extending the tax cuts for married filers with incomes above $250,000 and single filers with incomes above $200,000 — the top 2 percent of U.S. households —will result in deficits and debt about $1 trillion higher over the next ten years than allowing them to expire.
- Extension of Expanded “Coverdell” Accounts: NEA opposed the expansion of Coverdell Accounts (ESAs) to cover K-12 private school expenses, and we oppose the extension of such expanded accounts. Education Savings Accounts disproportionately benefit affluent families and those with children already in private school. Contrary to popular rhetoric, ESAs do nothing to expand parental “choice” as private schools remain free to reject any student they choose, including students with physical or learning disabilities or with limited English proficiency. In addition, ESAs give no real “choice” to low-income families who cannot afford to put money aside for private school tuition.
Thank you for your consideration of our views on these important issues.
Director of Government Relations
Manager of Federal Advocacy